White House debt-cutting plan takes aim at oil industry tax breaks

The Obama administration is seeking to end energy industry tax breaks. (AP photo)

President Barack Obama on Monday proposed repealing a suite of oil and gas industry tax incentives as part of a plan to cut $3 trillion from the federal deficit over the next 10 years.

The move marks just the latest attempt by the White House to spike the tax breaks, which the administration has repeatedly — and unsuccessfully — targeted for elimination. It reprises proposals that were part of Obama’s budget plan for the fiscal year that begins Oct. 1.

This time, Obama is hoping to capitalize on public outrage over the mounting deficit and tap into populist anger over what he termed “special interest loopholes” that allow “some companies (to) to get off paying a lot of taxes while the rest of them end up having to foot the bill.”

“Our tax code shouldn’t give an advantage to companies with the best-connected lobbyists,” Obama said in a Rose Garden speech Monday morning. “It should give an advantage to companies that invest in the United States of America and create jobs in the United States of America. And we can lower the corporate rate if we get rid of all these special deals.”

Obama unveiled his debt-cutting plan as a 12-member joint congressional committee searches for ways to cut at least $1.2 trillion from the federal deficit over the next decade. But he is up against significant opposition; Republican leaders in Congress, including House Speaker John Boehner, R-Ohio, have insisted that they will not support hiking taxes to draw down the nation’s debt.

Although the White House proposal would raise the bulk of revenues by allowing Bush-era tax cuts for the wealthy to expire, it also would bring in another $41 billion over 10 years by eliminating oil and gas tax incentives, including deductions for intangible drilling costs (such as the price of repairs, site preparation and hauling supplies) and for the percentage depletion at oil and natural gas wells.

The Obama administration also would bar oil and gas companies from claiming a domestic manufacturing deduction, which has generally been available to a broad range of U.S. firms. And it would prevent companies from claiming a tax credit on payments to foreign governments — including petroleum income taxes — that they pay in exchange for some economic benefit.

Coal industry tax incentives also would be on the chopping block, as would $150 million in oil and gas research and development programs over the next decade.

The White House plan also would:

Impose a new $4-per-acre, use-it-or-lose-it fee on all new non-producing oil and gas leases on land and offshore, raising an estimated $1 billion over the next decade. The administration has pitched this proposal as a way to spur oil and gas companies “to either get their leases into production or relinquish them so that the tracts can be leased to and developed by new parties.” But the oil industry insists they already have enough incentives to develop leases as quickly as possible.

Reinstate $18.7 billion in Superfund taxes that help pay for the cleanup of high risk hazardous waste sites. This would include an excise tax of 9.7 cents per barrel on crude oil and imported petroleum products and an excise tax on other hazardous chemicals.

Repeal the “last in, first out” accounting technique, which allows inventories to be valued at the most recent price paid when calculating net profit and taxable revenue. This accounting method is a big benefit for businesses with inventories that have increased in value, but it doesn’t conform with international accounting standards.

Obama’s plan spared so-called master limited partnerships, business structures that are used by many Houston energy companies, especially pipeline operators.

“Among the many revenue-raising proposals up for discussion was changing the treatment of pass-through partnerships to taxing them at the corporate tax rate or taxing ‘carried interest’ as normal income,” FBR Capital Markets said in a research note to clients. But none of those proposals materialized in Obama’s deficit-cutting plan.

Oil and gas industry leaders reacted angrily to Obama’s proposal.

Jack Gerard, president of the American Petroleum Institute, said the president’s plan “would destroy jobs and drive investment out of the United States.”

Instead of hiking taxes on the oil and gas industry to raise revenue, Gerard said the administration would be better off opening more public lands and waters for energy development.

“It’s ironic that in his search for revenues, the president overlooks the revenues available from increased access to domestic oil and natural gas,” Gerard said. “Rather than raising taxes on a single industry, he could raise revenues, create jobs and strengthen our energy security.”